A&M Tax Advisor Weekly
On December 14th, the IRS and Treasury released Notice 2019-1 addressing questions about previously taxed E&P (PTEP) in the post-TCJA world. The Notice is a 21-page preview of the impending proposed regulations under sections 959 and 961, largely focused on nuances related to the new PTEP group regime. Taxpayers should expect to apply the guidance for years ending after the Notice’s issuance (i.e., calendar year 2018), creating a short window to absorb what the IRS itself proclaims as “complex” rules with “administrative and compliance challenges.” We have sifted through the density to provide a brief overview of the rules described within the Notice.
16 PTEP Groups (Within each section 904 category)
The Notice adds six additional PTEP groups to the list of ten called for in the proposed regulations under section 960 (deemed paid credit) released earlier this month. As set forth in the proposed 960 regulations, there may be upwards of nine section 904 categories. A controlled foreign corporation (CFC) and its U.S. shareholders must maintain PTEP groups within each section 904 category, representing each type of U.S. shareholder income inclusion (legacy Subpart F, section 956, toll-charge (section 965), GILTI (section 951A) etc.), including groups under code sections which Congress has since repealed (section 956A, dealing with excess passive assets). Thus, the total number of PTEP groups will depend on the number of Section 904 Categories the CFC has and the types of PTEP within each category. Some CFCs may only have one or two section 904 categories and only one or two PTEP groups within each category. CFCs fitting that description would only have four or fewer PTEP groups. But for CFCs with diverse holdings and operations, there could conceivably be several dozen PTEP groups. Further, a PTEP group may not fall cleanly into one of the section 904 categories. To the extent that a PTEP group overlaps section 904 categories, any distribution out of that PTEP group is treated as made pro-rata from PTEP in each section 904 category.